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Solar Trade Association release pre-budget briefing

16 March 2016

The STA has released a pre-budget briefing outlining its views on the Government’s policies associated with the growth of solar energy.

HMT has consulted on raising VAT levels for domestic solar power and solar thermal systems to 20%, up from 5%, which would come into effect on 1st August. For solar power this VAT increase would add £900 to a 4kW domestic system, lengthening pay-back periods.

The STA stated that the domestic solar power industry has already had support cut by 65% and the market is now at a fifth of levels seen this time last year. In the context of climate change, STA claims the proposals are “nonsensical” and, if implemented, the company is looking for immediate mitigating action from DECC to maintain modest returns for families investing in solar energy systems. DECC has previously said that mitigating action would be taken; “If the rate of VAT does change, we will consider the options for how to maintain a suitable rate of return for investors under the feed-in tariff”.

The STA's preference is to maintain 5% VAT. If the VAT proposals go ahead UK families will be paying 20% VAT for solar systems, while paying 5% VAT for grid electricity, or fossil energy such as oil heating. DECC says that HMT has been forced to do this as a result of an EU court ruling.

According to STA, the Government's greatly reduced solar policies allow just 15MW of capacity for medium-sized commercial roofs per quarter, before Tariffs are significantly reduced. Solar over 1MW will not have any viable support from April in the UK, says the company, despite being highly cost-effective. Ministers had previously said they wanted a 'solar revolution' and DECC's Solar Strategy put a strong emphasis on commercial rooftop solar. But STA argues that current policies do not support this objective.

The Energy Efficiency Tax Review is therefore a unique opportunity to reward business investment in onsite and contracted solar power, as well as solar thermal - and at no cost to energy bill-payers according to the company. As a minimum the STA wants to see “perverse” penalties removed. The Review has consulted once in broad terms and it is hoped that more details will be provided in the budget. This is of major interest to the Solar Trade Association.

There is widespread concern about the marginalisation of cost-effective solar power in the energy policy landscape, which is now widely believed to be steered by Treasury. Government will be spending just 1% of new expenditure under the Levy Control Framework supporting solar power under its only remaining support scheme in each of the next three years - yet mainstream analysts expect solar power to dominate future energy supply. Solar power has been prevented from competing with other low-carbon generation - allowing this would provide both better value for money, and competitive pressure for other technologies, for the benefit of consumers. HMT has given very significant tax breaks to the oil and shale gas sectors (for example 100% first year Capital Allowances). DECC is consulting on subsidies for new gas generation under the Capacity Mechanism and has offered much larger CfD subsides for new nuclear than the CfDs solar previously received.

The Sunday Times reports that Osborne will announce plans for up to six 'giant tidal lagoon projects'. While support for diverse and innovative renewables is always welcome, the STA is concerned by a strong, general trend away from market & technological forces in energy policy, by the marginalisation of solar power, and by an increasingly unlevel playing field in relation to fossil fuels.

The STA was pleased to see the new National Infrastructure Commission report on 'Smart Power', showing how a modern, flexible power system, incorporating storage, could save consumers £8 billion per annum. The report said that flexibility 'can significantly reduce the integration cost of intermittent renewables, to the point where their whole-system cost makes them a more attractive expansion option than CCS and/or nuclear.' The STA is interested to see whether the Chancellor will take up the recommendations by the National Infrastructure Commission on Smart Power, which include much stronger emphasis on active, local networks - strongly supported by the solar industry - as well as increasing storage and flexibility in the power system. Solar sits at the heart of a modern, smart, decentralised grid and there is strengthening consensus across the energy sector that this is the way forward, and that Government needs to work with, and not against, a major technological shift.

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